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If your business runs into
serious difficulty, will it bring you down too? For
example, what if one of your employees got involved in a
serious car accident while working for you? Will the
resulting lawsuit bankrupt you personally?
Here are just a few ways of
protecting yourself against catastrophic losses and
lawsuits.
1. Obtain Adequate
Insurance Coverage
If someone slips on the
sidewalk of your home and injures himself, he could sue
you for damages. Your tenant's or homeowner's policy may
cover you for liability in such an event.
However, what if it is your
customer who falls on his way to visiting your home-based
business? You will need an extra rider on your house
insurance to cover such incidental business use. The extra
charge for this additional coverage is well worth it.
If you use a car for
business use, insure it for such. Some people think that
they are being clever writing off automobile expenses for
income tax purposes but at the same time not informing the
insurance company that the car is being used for business.
This is false economy. If
you ever get into an accident, police and insurance
investigators will certainly find out that you used the
vehicle for business purposes. If you're not paying for
business coverage, why would the insurance company cover
your claim?
As well, what do you think
an income tax auditor would think of your claimed business
expenses on the vehicle when your insurance policy
indicates personal coverage only? Avoid this additional
exposure to tax liability.
Be sure to obtain required
workers' compensation coverage. Some have been held
responsible for all the medical and other expenses of an
injured worker, as well as fines for non-compliance to the
law. These costs can be quite substantial and even
bankrupt you.
Consider obtaining product
liability insurance. This applies not just for any
products you manufacture but also for products you sell
that are made by others.
2. Incorporate Your
Business
Insurance may give you some
protection against loss. However, you may suffer business
losses and lawsuits that may not be covered by your
insurance fully. What then?
An extra level of
protection can be obtained by forming your own
corporation. Even though incorporating yourself will
result in extra paperwork and costs, it could be the best
insurance you ever bought.
This is because the
corporation is a seperate legal entity or person. Even
though you may own the corporation, if the corporation
operates the business, it is the corporation that will be
sued or suffer loss.
If, for example, the
corporation had severe business losses resulting in debts
that could not be repaid, the corporation would be
insolvent. You, as a shareholder, would lose your
investment in the company but would generally not be
responsible for any of its debts. Thus, you would not have
to sell your home or other personal assets to cover the
corporation's liabilities.
On the other hand, there
are cases where directors of a corporation can be held
responsible for liabilities if they didn't act
responsibly. You can't hide behind a corporation, commit
criminal acts and expect to escape accountability.
For more information about
incorporation, visit: http://www.popeconsultinginc.com/incorporation.html
3. Protect Yourself With
Legal Agreements
Properly drafted written
agreements can protect you in many ways. First of all,
they can sometimes prevent misunderstandings that can lead
to legal problems. Secondly, they may limit your exposure
to lawsuits and losses.
Contracts can limit your
exposure to liability by including provisions restricting
the scope of your work and responsibility, having disputes
handled by arbitration rather than through the Courts, and
specifying that the maximum damages payable shall not
exceed the amount of the contract.
A special area to watch out
for is the Internet. There are many laws that impact on
websites including matters affecting children, privacy,
earnings claims, and unsolicited e-mail
("spam"). Certain agreements and notices on your
website may help to protect you.
For more information about
Internet law, visit: http://www.popeconsultinginc.com/internet-law.html
Protect yourself from
catastrophic losses and lawsuits. Take steps today to
protect your assets by limiting your exposure to
liability.
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